Advice needed for out of state investing

San Diego, California
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Advice needed for out of state investing

Ivan Luna
Rental Property Investor 路 Fallbrook, CA 路 Member since 2021 路 12 posts 路 5 votes

I would like to get some input/advice on what to do next. I currently own a rental with my brother in Oceanside CA which we house hacked for a couple of years, until recently I moved out to purchase my own home. I would love to keep investing here in SD but it is nearly impossible with the current home prices and interest rates. I have also thought about building an ADU on the rental property but I do not want to refinance and pull money out of the current 2.8% loan. I have decided to invest out of state but am in analysis paralysis as to which state/city to invest in. I have about 25k to invest and would like to hear your ideas of what would be the best strategy . I appreciate any input , thank you.

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
3y
Quote from @Ivan Luna:

I had to read your post a couple times to figure it out. "SD" stands for South Dakota, but you're in California. I now realize you meant San Diego?

There's a ton of information about other markets that are financially viable for investors and $25,000 could get you started. Look for states that are Landlord-friendly (another way of saying they have fair laws and don't treat Landlords like criminals), growing population, attractive to businesses, good tax structure, and a strong education system that will keep tenants in place for many years. Narrow it down to a city, then neighborhoods, then start evaluating specific properties.


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  • Nathan Patterson
    New to Real Estate 路 Castle Rock, CO 路 Member since 2014 路 172 posts 路 66 votes
    3y

    As far as location, do you have any family in other states that you could narrow it down to? You could also visit the forums here that are for specific states & see what people are saying to help narrow it down. Or think about climate, where do you NOT want to go if you had to look at the property. Or even, figure out what do you want & then find a place that works. Such as, ROI or COC or cash flow or what ever you want.

    1Reply
  • Brian Bohrer
    Real Estate Agent 路 Colorado Springs, CO 路 Member since 2021 路 279 posts 路 121 votes
    3y

    Hey Ivan,

    If you interested in investing outside of your expensive market, I have heard many investors talk about Midwest properties. I personally own a rental SFH in central Nebraska that gives a great cash return but appreciation is around 3% on average. If you are looking to grow that money, you may be able to find some houses in the $100k range that your $25,000 would cover the down payment on. You would definitely create some cashflow at the expense of appreciation, and you would want to be sure that you have enough reserves to cover 3-6 months of mortgage payments and basic utilities if it goes unrented etc. This property could help you to save up some cash until rates get better to refinance your Oceanside rental.

    There was a Biggerpockets podcast recently with a savvy woman from the Detroit area who may have some great insight for you!  Episode 674 and originally Episode 331

    Hope this helps and good luck on your investment adventure!  I am only brave enough to invest in my area, so if you decide Colorado Springs is where you want to go, be sure to drop me a message! haha

    Take Care,

    3Reply
  • Theresa HarrisPro Member
    Member since 2019 路 15k+ posts 路 11k+ votes
    3y

    I agree with Nathan.  Focus on areas that you know or have family/good friends who know the area.  Look for a good place, not a cheap place as those look good on paper, but rarely are in real life.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    3y
    Quote from @Ivan Luna:

    I had to read your post a couple times to figure it out. "SD" stands for South Dakota, but you're in California. I now realize you meant San Diego?

    There's a ton of information about other markets that are financially viable for investors and $25,000 could get you started. Look for states that are Landlord-friendly (another way of saying they have fair laws and don't treat Landlords like criminals), growing population, attractive to businesses, good tax structure, and a strong education system that will keep tenants in place for many years. Narrow it down to a city, then neighborhoods, then start evaluating specific properties.


    The DIY Landlord Book4.7248 Reviews
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    4Reply
  • Ivan Luna
    OP
    Rental Property Investor 路 Fallbrook, CA 路 Member since 2021 路 12 posts 路 5 votes
    3y

    @Nathan Patterson I've got a cousin in Amarillo TX , might be a good idea to look in that market . As far as COC or cashflow I want something that cash flows at least $400 wether is through long ,mid, or short term.

    0Reply
  • Ivan Luna
    OP
    Rental Property Investor 路 Fallbrook, CA 路 Member since 2021 路 12 posts 路 5 votes
    3y

    @Brian Bohrer Thanks for the insight , it seems like the Midwest might a great option as far as cost to entry price. Do you have any realtors that you would recommend that are investor friendly?

    0Reply
  • Bob S.
    Real Estate Consultant 路 Cleveland 路 Member since 2020 路 6k+ posts 路 3k+ votes
    3y
    Quote from @Ivan Luna:

    I would like to get some input/advice on what to do next. I currently own a rental with my brother in Oceanside CA which we house hacked for a couple of years, until recently I moved out to purchase my own home. I would love to keep investing here in SD but it is nearly impossible with the current home prices and interest rates. I have also thought about building an ADU on the rental property but I do not want to refinance and pull money out of the current 2.8% loan. I have decided to invest out of state but am in analysis paralysis as to which state/city to invest in. I have about 25k to invest and would like to hear your ideas of what would be the best strategy . I appreciate any input , thank you.


     Cleveland of course, but you only having 25k you are not getting anything. Save then relook,  

    1Reply
  • Ivan Luna
    OP
    Rental Property Investor 路 Fallbrook, CA 路 Member since 2021 路 12 posts 路 5 votes
    3y

    @Nathan Gesner

    Yeah it鈥檚 for San Diego. Is there any markets/market that you would recommend? Thanks for the checklist to help narrow it down.

    0Reply
  • Eliott Elias
    Investor 路 Austin, TX 路 Member since 2021 路 9k+ posts 路 5k+ votes
    3y

    Come to Texas, property actually cash flows here if you house hack or rent by the room 

    2Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    3y
    Quote from @Ivan Luna:

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  • Manco Snead
    Investor 路 Spokane, WA 路 Member since 2015 路 238 posts 路 133 votes
    3y

    Don't know your full plan, but wherever you end up buying know that there are 10 times more landmines with OOS than when you manage yourself locally. This is key. Just went through my first OOS property and it's been a real nightmare. If you're getting a PM everything will be in their hands and you won't be there to see it. You can vet the PM, but that's still no guarantee. I'd try to find someone you trust that owns a bunch of OOS properties and figure out how to avoid disasters from that person.

    2Reply
  • Victor Saumarez
    Member since 2022 路 14 posts 路 9 votes
    3y

    I think you are going to be hard pressed to find value that cash flows or has upside potential in this market. Better to wait, in my view, until things have bottomed out (2-4 years). Where prices are crashing is where you might focus your attention. Boise? Out-of-state investing usually means using a property manager. It also might mean filing out-of-state taxes. However, the returns can outweigh the hassles. It also adds diversification to your portfolio. Geo-climate risk is becoming an important consideration in the selection process. Low prices are usually low for a reason.

    2Reply
  • Drew SygitBusiness Member
    Property Manager 路 Royal Oak, MI 路 Member since 2012 路 12k+ posts 路 9k+ votes
    3y

    @Ivan Luna

    We think the Midwest is a GREAT place for OOS investors to consider!

    YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/... (links also available @ our website)

    Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

    Many OOS investors set themselves up for failure because they don't truly take the time to understand:

    1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

    2) The Class of the PROPERTY they are buying - which is relative to the overall area.

    3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

    4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

    5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

    6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

    7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

    8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

    9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

    10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

    11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won鈥檛 pay them enough for the time required and even then it鈥檚 too difficult successfully manage them.
    ***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

    https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

    Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

    Good luck with whatever you decide馃槉

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  • Nicholas Coulter
    Real Estate Agent 路 Southern California 路 Member since 2019 路 681 posts 路 281 votes
    3y

    @Ivan Luna On the market has some great data about markets that are doing well and holding strong in this environment. I would start to listen there to get an idea. If not I would maybe look to vconnect with local REI networks. In San Diego its likely they are out of state and can give advice.

    1Reply
  • Brian Bohrer
    Real Estate Agent 路 Colorado Springs, CO 路 Member since 2021 路 279 posts 路 121 votes
    3y
    Quote from @Ivan Luna:

    @Brian Bohrer Thanks for the insight , it seems like the Midwest might a great option as far as cost to entry price. Do you have any realtors that you would recommend that are investor friendly?

    Hey Ivan, I used a realtor in Grand Island, NE where my SFH is located back when I was going to sell it, but I wouldn't say she is investor friendly.  I can certainly reach out to her if that location fits your needs. 
    Otherwise I would find your target area, research the BP forums in that area for Realtors, and then interview a few prospects to see who is a good fit!  That's what I did out here in Colorado Springs when we moved from the midwest.
    Also check into opportunity zones in whatever city you choose to save on those taxes! 
    Hope this helps! 
    1Reply
  • Dan H.Pro Member
    Investor 路 Poway, CA 路 Member since 2015 路 7k+ posts 路 8k+ votes
    3y

    Conventional non-OO financing will be no higher than 80% LTV. add in closing costs and reserves and you are likely looking at no higher than $85k property. Such a property has appreciated slower than inflation and is likely in a lower class area. Both of these point to the property likely not being a good OOS investment property. Even if you could find an OOS with better potential, OOS RE investing is full of risks.

    I would look at other investment options.  Possibly join a syndication as a LP (most syndications require more than $25k, but you may find some that have minimum contributions that low).   There are literally 1000s of investment options.  The lifetime return of S&P500 is nearly 10%.  

    Good luck

    1Reply
  • Aj Parikh
    Rental Property Investor 路 Centreville, VA 路 Member since 2019 路 1k+ posts 路 799 votes
    3y

    Hi Ivan, I have found value investing in Cleveland, OH because it is home to Cleveland Clinic, lot of good neighborhoods, landlord friendly laws, stable appreciation and good cash flowing properties. There are also abundant opportunities for small multi family and SFH. I have been able to scale up to 12 doors in 2 years so definitely recommend this area. Feel free to reach out and we can discuss.

    2Reply
  • Lindsey Johnson
    Realtor 路 Charleston, SC 路 Member since 2021 路 170 posts 路 58 votes
    3y

    @Ivan LunaThere are still deals to be had in Oceanside, just have to get creative! I sent you a DM:)

    1Reply
  • Kendell AdenPro Member
    Member since 2017 路 3 posts 路 3 votes
    3y
    Quote from @Ivan Luna:

    @Brian Bohrer Thanks for the insight , it seems like the Midwest might a great option as far as cost to entry price. Do you have any realtors that you would recommend that are investor friendly?

    I am a investor/realtor in Grand Island NE. Reach out if I can help you in any way!
    0Reply
  • Ivan Luna
    OP
    Rental Property Investor 路 Fallbrook, CA 路 Member since 2021 路 12 posts 路 5 votes
    3y

     @Nathan Gesner thanks for the link, great video on potential markets

    @Manco Snead Thanks for your personal experience, I really want to make it as smooth as possible. From wha I've gathered so farI need people that are experienced and can really trust.

    @Victor Saumarez. Doesn't sound like its going to be easy but also not impossible. I appreciate the advice.

    @Nicholas Coulter Will be listening to that podcast on my drive home from work. Thats great point, I will look for local REI meetups.

    @Brian Bohrer First time of me hearing about opportunity zones. Just did a quick google search looks like something that could work with the right team.

    1Reply
  • Brian Bohrer
    Real Estate Agent 路 Colorado Springs, CO 路 Member since 2021 路 279 posts 路 121 votes
    3y
    Quote from @Ivan Luna:

     @Nathan Gesner thanks for the link, great video on potential markets

    @Manco Snead Thanks for your personal experience, I really want to make it as smooth as possible. From wha I've gathered so farI need people that are experienced and can really trust.

    @Victor Saumarez. Doesn't sound like its going to be easy but also not impossible. I appreciate the advice.

    @Nicholas Coulter Will be listening to that podcast on my drive home from work. Thats great point, I will look for local REI meetups.

    @Brian Bohrer First time of me hearing about opportunity zones. Just did a quick google search looks like something that could work with the right team.


     My pleasure Ivan, I just love sharing life changing information! Good luck my friend

    1Reply
  • Wale LawalBusiness Member
    Real Estate Broker 路 Houston | Dallas | Austin, TX 路 Member since 2018 路 5k+ posts 路 2k+ votes
    3y

    @Ivan Luna

    Buy in an area with some similarities to the area where you live, such as climate, demographics, or property age so that you have some idea of what you're dealing with. If you have lived in a 1960s suburb of California your entire life, don't buy a Victorian in Boston.

    Don't buy a high-risk property. Buy in a primarily owner-occupied neighborhood to attract tenants who are a lower economic risk, says Ryan L. Hinricher, a founding partner of the investment home sales company Investor Nation. A high-quality property will typically have less maintenance and upkeep, he notes. "These properties also rent more quickly, as they usually have modern layouts and an adequate count of bedrooms and bathrooms."

    Finally, as mentioned earlier, it's crucial to build a great network of professionals to help you and to occasionally visit your property yourself.

    I am a real estate agent and investor in the Houston market.

    Katy, Cypress, Spring, some parts of Houston, Conroe, Tomball, Pearland are great markets.

    Rent growth and appreciation is steady.

    These cities tend to command quality tenants, and they have great schools.

    Good luck!

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  • Amber Tomczak
    Realtor 路 Boise, ID 路 Member since 2022 路 2 posts 路 2 votes
    3y

    Hi Ivan!

    It looks like you've had some great insights provided so far in terms of how to begin exploring other markets and identifying the strategy that will serve you best once you're ready. I noticed you also mentioned the ADU idea for your Oceanside property, but not wanting to refinance and lose your 2.8% rate. Have you considered a HELOC instead of a refi, that way you keep your mortgage interest rate in place?

    My husband and I live in San Diego and have been investing out of state (Boise, Idaho) for over 5 years, where I am also a licensed agent. We've certainly enjoyed great ROI, COC, cashflow, and appreciation in our market over the years. Although we're experiencing some corrections right now, we still anticipate home price growth in 2023. Norada Real Estate Investments wrote an informative article about Boise recently and references Zillow's forecast of a 4.3% price growth from Sept 2022 to Sept 2023, you can read more here: Norada | Boise Market Forecast. Idaho is also great for OOS investing as it is very landlord friendly and easily accessible from San Diego. Its less than a day's drive away or you can hop on a direct flight out of SD airport and be in Boise less than 2 hours later. We have properties that we self-manage and I also know some great property managers. I'd be happy to chat with you more about all things Idaho if it interests you!

    Happy Investing!

    2Reply
  • Patrick DruryBusiness Member
    Real Estate Agent 路 Columbus, OH & Cleveland OH 路 Member since 2021 路 1k+ posts 路 2k+ votes
    3y

    @Ivan Luna
    If you are looking at investing out of state, focus on markets that are landlord-friendly and have job opportunities and population growth. 

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  • Anthony L Amos Jr
    Real Estate Agent 路 Columbus | Toledo 路 Member since 2019 路 607 posts 路 768 votes
    3y
    Quote from @Ivan Luna:

    I would like to get some input/advice on what to do next. I currently own a rental with my brother in Oceanside CA which we house hacked for a couple of years, until recently I moved out to purchase my own home. I would love to keep investing here in SD but it is nearly impossible with the current home prices and interest rates. I have also thought about building an ADU on the rental property but I do not want to refinance and pull money out of the current 2.8% loan. I have decided to invest out of state but am in analysis paralysis as to which state/city to invest in. I have about 25k to invest and would like to hear your ideas of what would be the best strategy . I appreciate any input , thank you.


     Markets like Toledo and Cleveland are affordable and can create good cash flow using them as long term rentals

    1Reply
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